On Thursday, the Federal Energy Regulatory Commission (“FERC” or “Commission”) issued an order offering guidance (“Guidance Order”) on conducting compliance audits to the North American Electric Reliability Corporation (“NERC”) and the eight regional entities (“Regional Entities”) with responsibility for enforcing reliability standards. The Guidance Order was released on the same day the Commission approved an audit report of SPP’s reliability functions.
Pursuant to the Energy Policy Act of 2005 (“EPAct 2005”), NERC was chosen as the organization charged with developing and enforcing reliability standards. Since then, NERC has developed, and the Commission has approved, about 100 reliability standards. To help in ensuring compliance with the reliability standards, NERC has delegated enforcement power to eight Regional Entities.
In the Guidance Order, the Commission offered suggestions for improving the consistency of the audits across the regions in which NERC and the Regional Entities operate.
- Audit Team Leadership and Training: The Commission noted concerns with the independence of Regional Entities from the audited entities, and directed that leadership of audits should originate with NERC, with Regional Entity staff serving as “subject matter experts.” FERC also suggested that training for audit personnel include “skills in interviewing, choosing samples of matters to be audited, and evaluating evidence.”
- Pre-Audit Procedures: The Commission advised NERC to seek uniformity among regions with regards to pre-audit questionnaires. Furthermore, audit teams are to request that audited entities provide responses to data requests in a format that makes it easy to check against specific requirements. Finally, audit teams should leave sufficient time to process pre-audit data requests before scheduling site visits.
- Procedures during the Compliance Audit: During an audit, the audit team should focus on compliance, and not consider monetary penalties for violations before the audit has finished. NERC should try to be consistent about the amount of documentation that will suffice to demonstrate compliance. In addition to assessing compliance with reliability standards, an audit should also include an assessment of the entity’s compliance program. The Guidance Order also directs audit teams to be sensitive to “areas of concern that could become a violation” in addition to actual or ongoing violations, and to discuss and document those areas of concern. Last, audit teams should follow through on violations that are found, even where they are not the target of the investigation.
FERC Chairman Joseph T. Kelliher stated that “[i]n order to achieve effective enforcement, it is important to have consistency in the approach towards enforcement by these various entities. Greater consistency should also benefit the regulated community.” He further stated that the Commission will provide additional guidance as needed to ensure greater consistency.
A copy of the Guidance Order is available on the Commission’s website at http://www.ferc.gov/whats-new/comm-meet/2009/011509/E-1.pdf